Mistaken Excess Payments Recoverable where Employees Gave Undertaking

Source: Supreme Court

Why in News? 

A bench of Justice Dipankar Datta and Justice Sheel Nagu of the Supreme Court decided Dr MK Ravi Varma v. National Institute of Technology & Ors. (2026). The Court dismissed appeals filed by teachers whose Academic Grade Pay benefits were withdrawn after being found to have been granted by mistake, and upheld the Kerala High Court Division Bench’s order permitting the recovery. 

What was the Background of Dr MK Ravi Varma v. National Institute of Technology (2026) Case? 

• The appellants, teachers at a National Institute of Technology (NIT), were granted Academic Grade Pay around October 2009. 
• The benefit was withdrawn in January 2010 on the ground that the teachers had not completed the requisite years of service. 
• The teachers challenged the withdrawal through a writ petition before the Kerala High Court. 

Proceedings before the High Court: 

• A Single Judge allowed the writ petitions in November 2014, ruling in favour of the teachers. 
• In appeal, a Division Bench reversed this decision in November 2015, holding that the NIT had merely corrected a mistake. 
• The Division Bench also found that the teachers had not performed any additional duties because of their placement as Associate Professors and did not fall within any exceptional category. 
• Aggrieved, the teachers filed a Special Leave Petition before the Supreme Court. 

Question framed by the Supreme Court: 

• Whether financial benefits voluntarily extended to a class of teachers, without any misrepresentation, fraud or fault on their part, could be withdrawn. 

What were the Court’s Observations? 

On the history of precedents on recovery of excess payments: 

• The Court noted that State of Punjab v. Rafiq Masih (White Washer), relied upon by the appellants, has a prior history and cannot be read in isolation. 
• In Chandi Prasad Uniyal v. State of Uttarakhand, the Court had held that:  
  • There is no principle that excess pay can be recovered only upon proof of misrepresentation or fraud by the recipient. 
  • Any amount paid or received without the authority of law can ordinarily be recovered, subject to limited exceptions of extreme hardship, which are not available as a matter of right. 
  • In such cases, the law implies an obligation on the payee to repay, failing which it would amount to unjust enrichment. 

On the apparent conflict and its resolution: 

• In Rakesh Kumar v. State of Haryana, an apparent conflict was noticed between Shyam Babu Verma v. Union of India and Sahib Ram v. State of Haryana on one side, and Chandi Prasad Uniyal on the other. The question was referred to a 3-Judge Bench. 
• The 3-Judge Bench found no conflict, holding that:  
  • In Sahib Ram and Shyam Babu Verma, directions were issued under Article 142. 
  • Chandi Prasad Uniyal laid down the law under Article 136. 
• The present bench understood this to mean that Chandi Prasad Uniyal declared binding law under Article 141, while decisions following Sahib Ram and Shyam Babu Verma, being rendered under Article 142, lack the efficacy of binding precedent. 

On the course taken in later decisions: 

• The Court observed that the bench in Rafiq Masih (White Washer) did not apply Chandi Prasad Uniyal and instead followed the approach adopted in Sahib Ram, Shyam Babu Verma and Syed Abdul Qadir. 
• It noted that Thomas Daniel v. State of Kerala considered neither Chandi Prasad Uniyal nor the 3-Judge Bench decision in Rafiq Masih. 

On Section 72 of the Contract Act: 

• The Court remarked that no precedent in this line had discussed the applicability of Section 72 of the Indian Contract Act, 1872, though the reasoning in Chandi Prasad Uniyal appears to draw inspiration from it. 
• It clarified that it was not casting doubt on the coordinate bench decisions in Rafiq Masih and Thomas Daniel, but only highlighting that the law may not have developed on correct lines. 

On the effect of an undertaking: 

• Relying on High Court of Punjab & Haryana v. Jagdev Singh, the Court reiterated that the protection under the second category of paragraph 18 of Rafiq Masih does not apply where the employee was put on notice that excess payments would have to be refunded and furnished an undertaking to that effect. 

Application to the facts: 

• The NIT had placed on record undertakings given by the teachers agreeing to recovery if the pay fixation was found erroneous. 
• The Court held that a mistake had been committed in extending the benefit, which was withdrawn immediately upon detection. 
• In view of the undertakings, the recovery did not warrant interference in writ jurisdiction, and the Division Bench was right in reversing the Single Judge. 
• The appellants relied on a letter from the Director, Ministry of Human Resource Development, stating that benefits already given would not be recovered from academic staff of NITs. The Court rejected this, noting that the recovery had been effected two years before the writ petition was filed. 
• The appeals were dismissed and the Division Bench’s order was upheld. 

What is Section 72 of the Indian Contract Act, 1872? 

About: 

• Section 72 falls under Chapter V of the Act, which deals with “Of certain relations resembling those created by contract” (quasi-contracts). 
• It provides that a person to whom money has been paid, or anything delivered, by mistake or under coercion, must repay or return it. 

Key features: 

• The obligation arises by operation of law, not from any agreement between the parties. 
• It is founded on the principle of unjust enrichment: no person should retain a benefit to which they are not legally entitled. 
• The term “mistake” covers both mistake of fact and mistake of law. 
• The term “coercion” is used in its general sense and is not confined to the definition in Section 15 of the Act. 

What are the Exceptions Laid Down in State of Punjab v. Rafiq Masih (White Washer) (2015)? 

In paragraph 18 of the judgment, the Supreme Court listed situations where recovery of excess payments by the employer would be impermissible: 

• Recovery from employees belonging to Class III and Class IV (Group C and Group D) services. 
• Recovery from retired employees, or employees due to retire within one year of the order of recovery. 
• Recovery where the excess payment was made for a period exceeding five years before the order of recovery was issued. 
• Recovery where an employee was wrongfully required to discharge the duties of a higher post and was paid accordingly, even though entitled to work against an inferior post. 
• Any other case where the court concludes that recovery would be iniquitous, harsh or arbitrary to such an extent as to outweigh the employer’s right to recover.